The method of depreciation employed must reflect the pattern of future economic benefits of the asset consumed by an enterprise. The standard also prescribes, that the residual value and useful life of an asset must be reviewed at the end of each financial year and, in case the expectations vary from the previous estimates, changes must be accounted for as changes in accounting estimate as per Accounting Standard 5 – Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies. Depreciable amount of any asset should be allocated on a methodical basis over the useful life of the asset.Įvery part of property or P&E (Plant and Equipment) whose cost is substantial with respect to the overall cost of the item must be depreciated separately. Depreciation under AS 10 Property, Plant and EquipmentĪs per the standard, depreciation charge for every period must be recognized in the P/L Statement unless it’s included in carrying the amount of any another asset. Revaluations must be done at regular intervals for ensuring that the carrying amount doesn’t differ much from that which would be determined using the fair value at balance sheet date. According to the cost model, after recognizing the asset as an item of property or plant and equipment, it should be carried at the cost less the accumulated depreciation and the accumulated impairment losses (if any).Īs per revaluation model, once the asset is recognized and its fair value could be measured reliably, then it must be carried at the revalued amount, which is the fair value of such asset at the date of the revaluation as reduced any following accumulated depreciation and accumulated impairment losses (if any). Measurement of cost of the assetĪn enterprise can select the revaluation model or the cost model as the accounting policy and employ the same to the entire class of its properties and P&E. The cost of property and P&E should be recognized as an asset only if: (i) it is apparent that the future economic benefits related to such asset would flow to the business and (ii) the cost of such asset could be reliably measured. Recognition of Asset under AS 10 Property, Plant and Equipment (b) wasting assets which include mineral rights, expenses related to exploration for and extraction of oil, minerals, natural gas and other non-regenerative resources. The Standard is applicable to bearer plants, however, it doesn’t apply to the produce on bearer plants and (a) biological assets which are related to agricultural activities except for bearer plants. All of this activity requires capacity, and this capacity is provided by the property, plant, and equipment of a business.Applicability of AS 10 Property, Plant and EquipmentĪS 10 is to be applied in accounting for property, P&E (Plant and Equipment) and this standard are not applicable to: And even as the knowledge economy grows, there continues to be an increasing variety of consumer products being manufactured and sold. Even companies like Facebook and Google still need computers to run their applications, desks and chairs for staff to sit in, or buildings to house their operations. Yet, even with this change in focus from a traditional manufacturing economy, the importance of the physical assets of a business cannot be ignored. The future of commerce, we are told, lies in the development of ideas, processes, and brands. The rapid development of information technology in recent decades has highlighted the importance of intellectual capital. Identify key differences between IFRS and ASPE.Explain and apply the accounting treatment for post-acquisition costs related to property, plant, and equipment assets.Identify the accounting treatment for asset retirement obligation.
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